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Why foreign ownership may be good for you

  • Egger, Hartmut
  • Kreickemeier, Udo

We develop a general equilibrium two-country model with heterogeneous producers and rent sharing at the firm level due to fairness preferences of workers. We identify two sources of a multinational wage premium. On the one hand, there is a pure composition effect because multinational firms are more productive, make higher profits, and therefore pay higher wages. On the other hand, there is a firm-level wage effect: A multinational firm pays higher wages in its home market than an otherwise identical national firm since it has higher global profits. We analyse how these two sources interact in determining the multinational wage premium in a setting with two identical countries, and show that in this case the wage premium is fully explained by firm characteristics. We then allow for technology differences between countries and find that a residual wage premium exists in the technologically backward country, but not in the advanced country.

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Paper provided by University of Tuebingen, Faculty of Economics and Social Sciences in its series University of Tuebingen Working Papers in Economics and Finance with number 19.

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Date of creation: 2011
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Handle: RePEc:zbw:tuewef:19
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  1. Girma, Sourafel & Görg, Holger, 2006. "Evaluating the Foreign Ownership Wage Premium Using a Difference-in-Differences Matching Approach," CEPR Discussion Papers 5788, C.E.P.R. Discussion Papers.
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  4. Glass, Amy Jocelyn & Saggi, Kamal, 2002. " Multinational Firms and Technology Transfer," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 495-513, December.
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  10. Heyman, Fredrik & Sjöholm, Fredrik & Gustavsson Tingvall, Patrik, 2004. "Is there Really a Foreign Ownership Wage Premium? Evidence from Matched Employer-Employee Data," Working Paper Series 199, Trade Union Institute for Economic Research.
  11. Holger Görg & Eric Strobl & Frank Walsh, 2007. "Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(3), pages 464-482, October.
  12. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  13. Harrison, Ann E. & Scorse, Jason, 2008. "Do foreign-owned firms pay more?," MPRA Paper 15637, University Library of Munich, Germany.
  14. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  15. Nikolaj Malchow-Møller & James R. Markusen & Bertel Schjerning, 2009. "Foreign Firms, Domestic Wages," CAM Working Papers 2009-02, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  16. Fosfuri, Andrea & Motta, Massimo & Ronde, Thomas, 2001. "Foreign direct investment and spillovers through workers' mobility," Journal of International Economics, Elsevier, vol. 53(1), pages 205-222, February.
  17. Dirk Willem te Velde, 2003. "Do Workers in Africa Get a Wage Premium if Employed in Firms Owned by Foreigners?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(1), pages 41-73, March.
  18. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, December.
  19. Hartmut Egger & Udo Kreickemeier, 2008. "Fairness, Trade, and Inequality," CESifo Working Paper Series 2344, CESifo Group Munich.
  20. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
  21. Ernst Fehr & Armin Falk, 2003. "Wage Rigidity in a Competitive Incomplete Contract Market," Labor and Demography 0305001, EconWPA.
  22. Helpman, Elhanan & Itskhoki, Oleg & Redding, Stephen, 2010. "Inequality and Unemployment in a Global Economy," Scholarly Articles 25586656, Harvard University Department of Economics.
  23. Mary Amiti & Donald R. Davis, 2008. "Trade, Firms, and Wages: Theory and Evidence," NBER Working Papers 14106, National Bureau of Economic Research, Inc.
  24. Lipsey, Robert E. & Sjoholm, Fredrik, 2004. "Foreign direct investment, education and wages in Indonesian manufacturing," Journal of Development Economics, Elsevier, vol. 73(1), pages 415-422, February.
  25. Pedro S. Martins & Yong Yang, 2015. "Globalized Labour Markets? International Rent Sharing Across 47 Countries," British Journal of Industrial Relations, London School of Economics, vol. 53(4), pages 664-691, December.
  26. Steven Globerman & John C. Ries & Ilan Vertinsky, 1994. "The Economic Performance of Foreign Affiliates in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 27(1), pages 143-56, February.
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  28. Rachel Griffith & Helen Simpson, 2003. "Characteristics of Foreign-Owned Firms in British Manufacturing," NBER Working Papers 9573, National Bureau of Economic Research, Inc.
  29. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
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